HC 


UC-NRLF 


GIFT   OF 


MITCHELL  WAGON  COMPANY 

RACINE,  WISCONSIN 

OFFICE  OF  THE  PRESIDENT 
MARTIN  J.  GILLEN 


A  simple  and  practical  remedy  for  establishing 
the  base  cost  and  the  profits  of  American  Prod- 
ucers and  Supplies  of  war  goods  to  the  Govern- 
ment, with  the  considerations  which  control 
cost  and  profit.  Drawn  from  actual  experience 
had  in  furnishing  war  supplies  to  the  Allies  and 
from  actual  operating  conditions  existing  in 
manufacturing  and  supplying  in  this  country. 
Under  the  application  of  the  remedies  set  forth 
herein  this  Nation  will  save  hundreds  of  millions 
of  dollars  annually  and  at  the  same  time,  with 
justice  and  fairness  to  all,  help  stabilize  and  keep 
normal  the  economic  conditions  in  this  country. 


This  Plan  is  respectfully  submitted  in  the 
hope  that  it  will  draw  forth  from  the  Exec- 
utive Officers  of  this  Government;  from  the 
members  of  the  National  Council  of  Defense ; 
of  the  Advisory  Board  and  their  sub-com- 
mittees; of  the  General  Staff  of  the  Army; 
of  the  Quartermaster's  Department;  from 
the  Governors  and  the  members  of  the  State 
Councils  of  Defense;  our  Editors,  Business 
Men,  Farmers  and  Working  Men,  such  pub- 
licity and  welcome  criticism  to  the  writer  to 
the  end  that  its  principles  may  be  strength- 
ened or  modified  for  the  benefit  of  our 
Government,  and  that  the  suggestions  and 
criticisms  may  avail  in  presenting  to  the 
National  Council  of  Defense  and  Advisory 
Board  the  best  thought  of  this  Nation  on 
this  subject  to  the  end  that  justice  may  be 
done  to  the  Nation,  to  the  Producer  and 
Supplier,  and  to  the  one  hundred  ten  mil- 
lions of  men,  women  and  children  living  in 
domestic  life  in  this  Nation. 

MARTIN  J.  GILLEN. 


Racine,  Wis.,  May  14th,  1917. 

To  the  National  Council  of  Defense; 
Advisory  Board; 

Quartermaster's  Department  of  the  Army  and  Navy;  and 
American  Business  Men: 

The  writer  fully  appreciates  the  great  burden  that  has  been  thrown 
upon  the  National  Council  of  Defense,  its  Advisory  Board  and  the  Quarter- 
masters Department  of  the  Army  and  Navy  within  the  last  thirty  days  by 
the  sudden  declaration  of  war  and  the  great  unpreparedness  of  this  country, 
and  that  it  will  take  some  months  to  perfect  their  organizations  to  accomplish 
telling  results  in  supplying  the  Army,  Navy  and  our  Allies ;  that  the  actual 
conditions  under  which  the  above  bodies  are  now  laboring  have  forced  them 
to  reach  out  and  get  supplies  where  most  available  with  the  least  loss  of 
time,  and  that  they  have  not  bad  the  opportunity  to  command  uniformity 
in  their  price  establishment.  Thus  anything  that  is  said  in  this  communication 
is  not  critical.  The  writer  has  only  the  highest  commendation  for  the  mag- 
nificent 'and  effective  work  done  by  the .  National  Council  of  Defense ;  the 
Quartermaster's  Department  of  the  Army  and  Navy,  aud  by  the  Advisory 
Board  and  its  Committees  to  date. 

CONSIDERATIONS  BEARING  ON  THE  ESTABLISHMENT  OF  PRICES. 

THE  FIRST  CONSIDERATION  in  establishing  the  price  which  the 
government  should  pay  for  its  and  the  Allies  war  supplies  is  a  price  sufficient 
in  amount  that  will  not  impede  the  most  rapid  production  of  goods  to  meet 
governmental  requirements,  at  a  fair  profit  to  the  producer  with  the  thought 
ever  uppermost  that  the  government  and  Allies  should  be  treated  as  the  most 
favored  customer  of  the  producer  or  supplier. 

THE  SECOND  CONSIDERATION  is  the  careful  placing  of  all  orders 
by  the  government  in  each  producing  or  supplying  group  so  as  not  to  upset 
the  economic  conditions  surrounding  (a)  each  group  of  war  supply  producers, 
(b)  their  emploj^ees,  (c)  the  price  of  raw  material  us<ed,  and  (d)  economic 
saving  of  transportation. 

As  an  illustration:  The  placing  of  orders  for  shoes:  At  the  time  of 
the  breaking  out  of  the  war  we  were  supplying  shoes  for  o*ne  hundred  ten 
millions  of  men,  women  and  children  <and  a  certain  amount  for  export.  By 
the  call  to  arms  the  country  will  be  compelled  to  produce  for  the  above,  which 
includes  the  three  million  which  will  eventually  be  called  out  who  will  pos- 
sibly use  four  to  five  times  as  many  shoes  as  were  used  in  domestic  life  by 
them. 

If  they  use  five  times,  the  increased  national  production  of  shoes  will 
be  somewhere  -about  twelve  per  cent  of  the  normal  production,  but  it  will 
be  along  the  lines  of  the  'heavy  shoes  (that  are  manufactured  within  the  shoe 
group,  to  which  possibly  75  per  cent  of  the  machinery  now  in  use  in  the 
country  can  be  adapted,  which  means  that  the  increase  of  production  if  placed 
uniformly  over  the  entire  shoe  group  of  this  country  on  the  above  75  per  cent 
basis  would  mean  a  national  increase  of  about  16  per  cent. 

This,  of  course,  is  not  practical  in  all  cases  but  in  a  very  large  way  it 
can  be  applied  in  the  shoe  group  across  this  country  in  those  large  edonomic 
belts  where  the  soldiers  are  being  mobilized  and  where  many  of  them  will' 
be  held  in  camps  for  a  very  long  period. 


Take  the  City  of  Milwaukee  where,  I  am  informed,  a  short  time  ago  a 
Avar  order  for  60,000  pairs  of  shoes  had  been  placed  with  a  moderate  sized 
shoe  factory  while  there  are  about  fifteen  other  shoe  factories  in  that  city  that 
could  have  taken  their  production  of  4,000  pairs  apiece,  assuming  they 
have  the  same  production  capacity.  The  increased  production  to  each  of  the 
five  would  not  be  large ;  it  would  not  upset  the  shoe  labor  market  in  that  city, 
nor  cause  a  general  increase  in  the  price  of  manufacturing  shoes  in  that  mar- 
ket and  equally  so  across  the  United  States.  In  a  word,  all  shoes  which  can  be 
made  across  the  United  States  in  the  big  economic  belts  should  be  made  there 
and  as  close  to  the  leather  markets,  near  the  packing  houses  and  big  tan- 
neries; >and  the  increased  production  will  be  so  small  that  it  will  not  upset 
economic  conditions  surrounding  each  paid  Group  and  much  m)o:ney 
will  be  saved.  Consideration,  of  course,  must  be  given  to  the  great  producing 
centers  of  shoes,  such  as  about  Boston,  St.  Louis,  Cincinnati  and  like  centers, 
which  provide  great  quantities  of  shoes  for  their  surrounding  economic  belts. 
The  increased  price  caused  by  the  abnormal  changes  made  by  placing  the  orders 
with  a  few  rather  than  all  members  of  the  group  drives  up  the  general  cost 
of  shoes  for  the  one  hundred  ten  millions  of  men,  women  and  children  beyond 
normal  increases. 

Another  illustration :  Take  wagons ;  assume  that  for  the  next  twelve 
months  the  government  will  require  about  seventy  thousand  units.  A  pre- 
liminary order  for  eight  thousand  was  at  hand  two  weeks  ago.  There  are  about 
ten  big  wagon  factories  besides  those  of  the  southeastern  states.  The  army 
specifications  have  already  been  standardized  to  meet  the  factory  tool  equip- 
ment and  the  raw  material  markets  of  this  country.  The  placing  of  the  wagon 
orders  with  two  or  three,  or  possibly  four,  of  the  big  wagon  companies  would 
cause  those  companies  to  go  out  into  the  open  market  for  raw  material  besides 
the  stocks  they  have  at  hand  and  will  compel  them  to  buy  in  many  instances 
from  the  yards  of  the  other  wagon  manufacturers.  Prices  will  shoot  up  over 
night.  Normally  the  wagon  manufacturers  of  this  country  produce  250,000 
wagons  and  nearly  every  wagon  company  can  build  the  army  wagon  under 
the  standardized  specifications. 

A  large  amount  of  useless  transportation  on  raw  stock  and  on  the 
shipping  of  the  finished  product  to  far  removed  points  and  increased  prices 
not  only  to  the  government,  but  to  the  farmers  who  use  annually  250,000 
wagons  will  occur,  and  thus  the  wagon  group  would  not  have  its  economic  con- 
ditions materially  changed  when  the  orders  are  spread  over  the  group  — The  in- 
creased production  could  be  absorbed  without  such  marked  economic  changes. 
The  writer  appreciates  there  will  be  many  instances  where  this  cannot  be  ap- 
plied but  is  suggesting  the  principles  so  that  they  may  be  applied  where  pos- 
sible. 

THE  THIRD  CONSIDERATION  is  the  establishment  of  a  committee 
on  specifications  and  information,  whose  duty  it  is  to  immediately  notify  the 
units  in  each  group  with  (a)  the  rules  under  which  inspection  of  goods  is  made ; 
the  method  of  cancellation  of  orders ;  payments,  supply  of  raw  material,  etc., 
and  (b)  a  brief  but  technical  description  of  the  specifications  and  requirements, 
immediate  and  for  the  year,  of  the  government  in  that  particular  group  spread 
across  the  country,  and  have  on  file  in  at  least  eight  of  the  principal  Quarter- 
masters Departments  across  the  country  a  copy  of  the  specifications  and  blue- 
prints of  the  things  required  by  the  government  which  do  not  disclose  any  of 
the  secrets  of  manufacturing  which  they  wish  to  withhold.  During  the  plac- 
ing of  Orders  for  the  first  year  and  a  half  by  the  French,  English  and  Russian 
Governments  in  this  country,  the  following  conditions  caused  the  Allies  to  pay 
very  heavy  and  unnecessary  exactions  in  the  way  of  profits: 


First:  The  failure  of  the  French,  British  and  Russian  Governments 
to  publicly  and  directly  so  arrange  that  the  American  producers  could  get 
and  keep  in  touch  in  this  country  with  their  duly  authorized  buying  com- 
missioners, together  with  a  brief  description  of  their  specifications  and  the 
amounts  required.  Because  of  this  failure  on  their  part  they  werte  forced  to 
purchase  in  a  very  limited  market.  The  policy  of  the  French  Commission 
developed  finally  into  buying  from  only  two  sources  of  supplies  within 
a  given  group  of  manufacturers  or  suppliers,  which  caused  them  to  pay 
profits  from  thirty  to  one  hundred  percent.  The  British  Government  later 
corrected  this  condition  in  a  limited  degre'e,  as  did  the  French,  by  buying 
through  J.  P.  Morgan  &  Company,  but  even  thereafter  their  orders  were 
placed  in  a  very  limited  field  because  they  were  mostly  placed  as  near  the 
eastern,  coast  as  possible  in  order  to  save  transportation  charges.  The  result 
however  was  a  small  saving  in  freight  but  excessive  profits  totaling  many  times 
the  freight  bill. 

Second:  The  French,  British  and  Russian  Governments  required  im- 
practical guarantees  on  their  goods  similar  to  the  ones  employed  by  our  Govern- 
ment before  this  war  when  it  was  purchasing  for  thirty  thousand  troops  in  a 
limited  market  which  it  had  created  through  the  arbitrary  specifications  of 
the  Army  and  Navy.  The  early  guarantee  of  the  Allies  was  so  rigid  and  so 
out  of  harmony  with  the  customs  of  guarantees  prevailing  in  this  country  in 
the  big  American  market  that  many  high  grade  manufacturers  did  not  take 
any  orders  and  those  that  did  added  a  good  sized  percentage  to  their  cost  so 
as  not  to  have  a  loss. 

The  remedy  for  this  is  to  have  inspectors  who  have  been  trained  in  each 
line  of  goods  that  is  purchased,  inspect  supplies  (a)  while  they  are  being 
manufactured  and  (b)  when  finished  and  before  shipped.  War  use  is  the 
hardest  use  goods  can  be  put  to  and  no  manufacturer  can  reasonably  be  ex- 
pected to  guarantee  them  without  being  protected,  for  in  the  ultimate,  the 
government  must  pay  for  the  goods  it  requires,  of  the  kind  it  specifies  working 
under  actual  war  conditions.  The  perils  to  goods  in  war  conditions  are  so 
unlike  those  under  peace  conditions  that  this  risk  should  be  taken,  over  by 
the  government — .  It  should  be  furnished  with  honest  and  well  made  goods 
and  it  should  get  this  through  its  inspectors  before  the  goods  are  shipped. 
BY  ASSUMING  THIS  RISK  THE  GOVERNMENT  SAVES  MILLIONS  OF 
DOLLARS,  FOR  IF  IT  DOES  NOT  ACCEPT  THIS  RISK  IT  MUST  PAY 
THE  MANUFACTURER  FOR  CARRYING  IT,  AND  SINCE  IT  IS  OF 
SUCH  A  DOUBTFUL  NATURE  THE  MANUFACTURER  WILL  TRY  TO 
FIX  A  PERCENTAGE  THAT  WILL  FULLY  PROTECT  HIM.  Then  too 
under  the  remedy  provided  below  all  opportunity,  desire  and  incentive  to 
cheat  and  defraud  is  removed. 

I  am  informed  that  on  the  war  supplies  furnished  by  the  American 
manufacturers  the  French,  British  and  Russian  Governments  did  not  have 
occasion  to  insist  on  collection  but  in  few  instances,  and  thus  the  American 
manufacturers  received  an  additional  profit  to  the  extent  of  the  percentage 
for  guaranteeing  protection  that  they  added  to  their  goods  and  in  general  it 
would  work  out  the  same  with  our  own  government.  Fraud  in  manufacturing 
goods  should  be  sternly  punished  by  imprisonment  and  heavy  confiscatory  fines. 

Third:  The  fear  of  the  cessation  of  hostilities  or  the  change  of  war 
needs  by  the  Allies  added  another  contingent  liability  which  each  manufacturer 
charged  to  the  Allies  in  a  percentage  on  its  goods.  Our  government  should 
agree  to  stand  all  loss  to  the  suppliers  and  manufacturers  upon  orders  duly 
given  in  case  of  the  cessation  of  war  in  the  change  of  orders  given  by  the 
government  under  some  equitable  and  businesslike  arrangement  that  can 


readily  be  furnished.  Unless  this  is  done  reasonably  and  equitably  the  manu- 
facturer and  supplier  must  add  additional  charges  to  protect  him  from  loss 
in  this  regard.  Again  in  the  ultimate,  whatever  loss  must  be  taken  from  these 
causes,  must  be  assumed  by  the  Government. 

In  open,  hard  competition  among  seven  competitors  on  a  certain  war 
order  for  France  (in  which  the  writer  was  personally  interested),  the  above 
elements  caused  the  American  manufacturers  who  were  bidding  to  so  price 
their  goods  that  the  French  Government  was  compelled  to  pay  for  a  certain 
order  of  goods  that  cost  the  manufacturer  $112,000.00— the  sum  of  $216,000.00 
or  a  profit  of  $104,000.00,  which  was  almost  one  hundred  per  cent  of  the 
cost  price. 

All  of  the  above  elements  of  doubtful  liability  to  the  manufacturer  and 
supplier  can  be  easily  eliminated  by  our  government  with  a  tremendous  sav- 
ing to  it. 

THE  FOURTH  CONSIDERATION  goes  to  the  merits  of  the  varying 
amounts  or  percentages  of  profit  to  the  producers  or  suppliers  from  the  stand- 
point of  justice  to  our  government  and  the  economic  welfare  not  only  of  the 
men  who  sell  to  the  government  but  to  the  nation  at  large  as  it  is  affected. 

Under  this  section  each  class  must  be  treated  differently  in  the  amount 
of  percentage  of  profit  allowed: 

First  Class:  (a)  Those  Groups  of  manufacturers  or  suppliers  who  do 
wholly  <a  domestic  business  and  as  a  Group  furnish  th'e  needs  for  the  110,000,- 
000  men,  women  and  children  of  this  country  and  take  on  a  percentage  of 
war  business  in  their  particular  lines  or  similar  lines  to  which  their  machinery 
can  be  adapted,  like  shoes,  clothing,  wagons,  woolen,  cotton  and  other  fabric 
manufacturers,  harness  making,  motor  truck  and  its  accessory  plants,  lumber, 
machinery,  foundries,  meats,  food  stuffs,  etc. 

(b)  The  great  Groups  of  producers  and  suppliers  for  the   domestic 
needs  in  arts,  sciences  and  commerce  of  natural  products  coming  from  the 
mines  and  wells,  such  as  metals,  minerals  and  oils,  who  take  on  additional 
orders  for  war. 

(c)  The  great  Groups  of  producers  and  suppliers  of  raw  materials, 
such  as  leather,  lumber,  steel,  cotton,  wool,  etc.,  who  supply  the  domestic  needs 
of  the  Government  and  are  now  called  to  furnish  supplies  to  manufacturers 
who  accept!  large  war  orders  for  the  Government. 

Second  Class:  Those  manufacturers  who  are  and  have  been  in  the  ex- 
clusive business  of  manufacturing  war  supplies. 

Third  Class :  The  suppliers  and  producers  of  natural  products  of  which 
there  is  a  limited  supply  and  which  require  investments  which  will  be  of  little 
value  after  the  war  is  over. 

Fourth  Class:  Those  producers  or  suppliers  who  are  compelled  to 
build  new  plants  and  make  new  investments  to  take  care  of  new  army,  navy 
or  national  needs  of  which  there  is  not  an  ample  supply  in  this  county— a  good 
example  is  ship  building. 

THE  FIFTH  CONSIDERATION:  The  American  manufacturers  and 
suppliers  should  give  to  the  government  the  same  degree  of  material  patriotism 
that  is  required  of  the  enlisted  and  drafted  men  and  women  for  army,  navy 
and  federal  services.  The  profits  granted  to  them  should  not  permit  of  the 
cry  "Pocketbook  Patriotism"  nor  should  there  be  created  the  opportunity 
for  the  so-called  "War  Brides"  from  unusual  profits. 


The  American  business  man  has  been  given  the  opportunity  to  show  his 
patriotism  for  the  county  in  as  large  a  manner  as  he  could  ask.  The  bank- 
ing and  investment  houses  of  this  country  patriotically,  for  a  number  of  weeks 
before  the  war  loan  was  put  out,  stopped  their  vast  and  expensive  organizations 
from  placing  before  the  public  new  offerings  and  then  turned  their  entire  or- 
ganizations from  one  end  of  this  country  to  the  other  to  aid  in  handling  the 
seven  billion  dollar  loan  without  cost  to  the  government.  They  fall  within  the 
First  Class  under  Consideration  Four  above,  for  they  will  make  their  profits 
out  of  the  domestic  banking  transactions  for  which  their  companies  antl  their 
organizations  were  builded. 

Another  illustration  is  that  of  the  Chicago  packers  who  furnished  the 
preliminary  order  for  shoe  leather  to  the  Government  >at  a  modified  price  as 
to  delivery,  so  as  to  expedite  the  early  need  of  army  shoes.  They  fall  within 
the  First  Class  under  Consideration  Four  above. 

Another  illustration  is  that  which  appeared  in  the  advertisement  of  the 
Bethlehem  Steel  Company  a  few  months  ago,  where  they  made  an  offer  to 
the  government  to  furnish  supplies  at  cost  plus,  as  I  now  remember,  either  five 
or  six  per  cent  profit.  They  too  fall  somewhat  within  the  First  Class  under 
the  Fourth  Consideration  above,  but  since  the  war  has  started  it  looks  as 
though  they  have  or  will  move  largely  into  the  Second  Class  under  Considera- 
tion Four  above. 

Many  other  illustrations  of  the  truly  patriotic  business  man  are  at 
hand.  It  is  the  manufacturing  and  supplying  "slacker"  that  the  Government 
must  be  protected  against. 

THE  SIXTH  CONSIDERATION :  Every  American  manufacturer  and 
supplier  engaged  in  domestic  business,  who  is  so  fortunate  as  to  be  within 
the  group  which  receives  war  orders  from  the  government,  will  during  the 
war  receive  a  portion  of  his  factory  overhead  expenses  and  a  profit  much  in 
the  nature  of  governmental  insurance  or  subsidy,  while  (as  has  been  the  case 
with  England,  France  and  Germany)  a  large  percentage  of  the  balance  of  the 
manufacturers  and  suppliers  in  this  country  will  be  forced  to  limit  their  ac- 
tivities and  some  of  them  will  be  absolutely  prescribed  so  as  not  to  use  labor 
and  material  which  is  necessary  and  which  must  be  diverted  to  war  purposes. 
One  can  readily  understand  how  our  Government  must  quickly  and  sternly 
divert,  for  instance,  steel  products  and  their  accessories  from  domestic  uses 
to  war  purposes  for  making  munitions;  machinery  and  equipment  for  rail- 
roads, for  farm  implement  purposes,  and  the  like — at  whatever  economic 
sacrifice  to  the  other  less  fortunate  Groups.  Thus  the  burden  falls  on  the 
latter  class  to  carry  their  business  through  war  times  without  governmental 
aid  and  under  heavy  restriction.  In  England  there  is  today  a  list  of  over 
fifty  occupations,  trades,  businesses  and  groups  in  which  men  from  eighteen 
to  fifty-six  years  are  not  allowed  to  be  employed.  In  that  class  too  their  wants 
for  raw  materials  and  supplies  are  made  secondary,  to  the  needs  of  the  Gov- 
ernment, which  in  itself  is  a  very  hard  and  distressing  burden.  It  must/  also 
be  kept  in  mind  that  the  agricultural  classes,  the  war  suppliers  and  labor 
generally  will  not  be  cut  in  price  or  injured  in  their  groups  and  occupations. 

This  being  so,  they  should  not  unduly  profit  on  the  supplies  they  furnish 
to  our  Government  and  the  Allies  to  whom  we  are  furnishing  the  sinews 
of  war,  while  their  less  fortunate  fellow  manufacturers  and  suppliers  are 
being  unduly  limited  by  conditions  over  whic'h  neither  they  nor  the  Govern- 
ment have  control.  It  makes  no  difference  whether  thej  burdens  of  prescrip- 
tion and  limitation  come  by  fiat  of  law  or  indirectly  by  the  orders  of  the 
Government  placed  in  its  efforts  to  take  care  of  its  war  needs  of  its  citizens. 
The  great  moral  fact  of  justice  remains  that  this  must  not  be  a  war  of  profit, 


and  prices  must   be   curbed   and  kept   as  normal   as   is   possible   during   the 
economic  changes  that  the  country  is  now  passing  through. 

REMEDY  OR  APPLICATION  OF  PRINCIPLES  TO  THE  ABOVE 
CONSIDERATIONS  IN  ORDER  TO  ESTABLISH  THE  PRICE  OUR 
GOVERNMENT  SHOULD  PAY  FOR  ITS  AVAR  MATERIALS  AND  THE 
PROFIT  TO  BE  ALLOWED  TO  THE  MEMBERS  OF  THE  CLASSES  SET 
FORTH  IN  CONSIDERATION  FOUR, 

REMEDY   ONE: 

Under  the  First  Class  set  forth  in  the  Fourth  Consideration  on  page 
seven,  the  Government  should  pay  the  manufacturer's  or  supplier's  cost  plus 
five  per  cent  profit.  Each  of  the  manufacturers  and  suppliers  of  the  three 
divisions  of  that  Class  should  furnish  to  the  Government  a  statement  of  his 
costs  as  taken  from  his  cost  records  under  the  oath  of  the  President,  Treas- 
urer and  the  man  in  charge  of  his  Cost  Department,  In  that  statement  there 
should  appear  (a)  the  actual)  cost  of  the  raw  material  going  into  the  manu- 
factured article  with  the  freight,  handling  and  carrying  charges  set  forth 
which  constitutes  the  cost  of  his  raw  material,  (b)  The  estimated  direct 
labor  to  be  expended  on  the  order,  (c)  The  estimated  overhead  containing 
such  items  as  power,  insurance,  taxes,  depreciation,  repairs,  general  factory 
expense,  pattern  expense  and  such  labor  overhead  expenss  as  have  been-  cus- 
tomary according  to  the  records  of  the  books  -and  files  of  the  different  groups 
of  manufacturers  and  suppliers.  These  items  will  constitute  the  cost  basis 
upon  which  the  percentage  of  profit  is  to  be  given.  At  the  termination  of 
the  contract  with  the  Government  the  supplier  or  manufacturer  will  furnish 
under  oath  of  its  President,  Treasurer  and  Cost  Man  a  statement  showing 
the  actual  cost  of  labor,  material  and  overhead  itemized  by  the  same  method 
and  comparable  with  the  submitted  preliminary  estimate.  If  the  cost  has 
been  less  the  Government  shall  have  an  advantage  by  way  of  a  rebate — if  it 
has  been  more  the  Government  shall  pay  the  additional  charge  to  the  manu- 
facturer or  supplier  The  contract  shall  be  made  with  the  supplier  on  the 
basis  of  his  preliminary  estimated  cost  and  his  payment  shall  be  made  on  that 
basis  subject  to  the  final  adjustment.  Under  any  plan  that  may  be  determined 
the  Government  will,  as  it  does  now,  pay  all  of  the  above  items  constituting 
the  manufacturer's  costs. 

The  manufacturers  'and  suppliers  in  this  country  operate  their  business 
on  that  basis  and  know  the  estimated  cost  of  their  business  operations;  in  a 
word,  all  of  the  above  items  constituting  cost  are  susceptible  of  being  clearly 
defined  by  each  supplier. 

The  banks  of  this  country  do  not  loan  money  to  'manufacturers  and 
suppliers  unless  they  have  proper  cost  systems  by  which  the  annual  opera- 
tions of  their  business  can  be  determined.  Edward  N.  Hurley,  Chairman  of 
the  Federal  Trade  Commission,  on  July  1,  1916,  issued  for  the  benefit  of  small 
companies  a  pamphlet  entitled  "Fundamentals  of  a  Cost  System  for  Manu- 
facturers." It  followed  the  system  which  has  for  all  practical  purposes  been 
in  operation  for  years  everywhere  in  this  country,  so  there  can  be  no  excuse 
for  any  supplier  or  manufacturer  falling  to  provide  the  Government  with 
actual  costs.  THEN  TOO  OUR  GOVERNMENT  COLLECTS  EVERY  DOL- 
LAR OF  ITS  FEDERAL  INCOME  TAX  FROM  MANUFACTURERS  AND 
SUPPLIERS  ON  THE  ABOVE  BASIS.  FOR  AT  THE  END  OF  EACH 
FISCAL  YEAR  UNDER  LAW  THE  GOVERNMENT  ACCEPTS  THE 
SWORN  STATEMENT  OF  THE  OFFICERS  OF  EACH  CORPORATION 
AND  FIRM  OF  THIS  COUNTRY  AS  TO  ITS  ANNUAL  BUSINESS  OPERA- 
TIONS SO  AS  TO  ESTABLISH  THE  AMOUNT  OF  PROFIT  UPON  WHICH 
THE  INCOME  TAX  IS  LEVIED.  ALTHOUGH  THE  FEDERAL  INCOME 
TAX  WILL  BE  GREATLY  INCREASED  THIS  YEAR,  THE  SAME  METHOD 
OF  COLLECTION  WILL  CONTINUE. 


The  Government  has  in  its  employ  expert  accountants  whose  duty  it  is 
to  mspect  the  book  records  of  the  various  firms  and  corporations  of  the 
United  States  to  see  that  they  are  not  avoiding  the  Federal  Income  Tax  under 
their  method  of  bookkeeping:.  Then  too  the  corporations  and  suppliers  of  this 
country  <are  mostly  stock  corporations  and  they  are  compelled  to  make  a 
proper  showing  to  their  stockholders,  and  this  in  itself  is  a  corrective  at 
all  times  to  keep  their  cost  accounting  and  other  accounting  in  a  sound 
condition — in  a  word,  the  Government  will  be  absolutely  protected  in  entering 
into  such  contracts. 

The  writer  in  the  last  three  years  has  operated  one  contract  under  this 
method  where  millions  of  dollars  Avorth  of  business  has  been  done  without 
any  difficulty  and  in  a  far  more  satisfactory  way  than  on  the  straight  price 
contract  basis. 

Because  of  the  billions  of  dollars  that  will  be  expended  by  the  Gov- 
ernment to  manufacturers  and  suppliers,  it  is  necessary  to  have  absolute 
protection.  Therefore,  a  strong  committee  of  practical  men  with  large  view- 
point and  special  experience  in  contract  work  should  be  appointed  by  the 
Advisory  Board.  On  that  committee  place  such  a  man  as  Major  C.  C.  Jamie- 
son,  a  graduate  of  West  Point;  many  years  connected  with  the  Rock  Island 
Arsenal,  and  later  for  many  years  with  John  Deere  &  Company  of  Moline, 
Illinois,  and  for  the  last  two  years  an  expert  for  some  of  the  largest  corpora- 
tions of  this  country  in  that  particular  work,  and  now  recalled  to  the  colors. 
SELECT  ONE  OR  TWO  BIG  MEN  FROM  THE  LARGE  CERTIFIED 
ACCOUNTING  HOUSES  OF  THE  CLASS  OF  ARTHUR  YOUNG  &  COM- 
PANY; PRICE,  WATERHOUSE  &  COMPANY;  HASKINS  &  SELLS  OR 
LIKE  COMPANIES,  AND  EMPLOY  FOR  THE  AID  OF  THAT  COMMIT- 
TEE PARTS  OF  THE  STAFF  OF  THOSE  BIG  PUBLIC  CERTIFIED 
ACCOUNTING  HOUSES  OF  THIS  COUNTRY  WHOSE  DUTY  IT  SHALL 
BE  TO  CHECK  FROM  TIME  TO  TIME  THE  RECORDS  OF  THE  MANU- 
FACTURERS AND  SUPPLIERS  OF  WAR  MATERIAL.  The  firm  of  Arthur 
Young  &  Company  was  employed  by  the  British  Government  to  maintain  a' 
large  staff  in  the  firm  of  J.  P.  Morgan  &  Company  checking  their  war  orders 
and  also  in  charge  of  the  Curtis  Aeroplane  contracts  for  the  English  Gov- 
ernment. Men  of  this  class  have  been  engaged  in  this,  country  for  years  on 
accounting  work  and  especially  on  checking  up  costs,  AND  WITH  THIS 
AID  TO  THE  GOVERNMENT  THERE  CAN  BE  BROUGHT  A  CER- 
TAINTY WHICH  WILL  PROTECT  AGAINST  ANY  SCANDAL  IN  THE 
BUYING  OF  WAR  SUPPLIES  IN  THIS  COUNTRY. 

Under  this  class  the  Government  so  far  as  it  is  a'ble  buys — (a)  its  direct 
supplies  (such  as  food  stuffs  for  the  Army)  and  (b)  all  lumber,  leather, 
cotton  goods,  rubber,  iron,  steel  and  things  of  like  nature  and  delivers  them 
to  the  manufacturers  of  war  supplies  so  that  the  "Pocketbook  Patriots" 
among  the  raw  material  suppliers — like  the  lumber  brokers  have  demonstrated 
themselves  to  be  within  the  last  twenty  days — cannot  force  high  prices  for 
the  raw  material  that  goes  into  the  manufactured  articles,  at  a  great  profit 
to  them,  while  the  manufacturers  and  suppliers  are  patriotically  building  for 
the  Government  at  reasonable  prices.  For  example :  The  day  after  the  wagon 
manufacturers  met  at  Jeffersonville,  Indiana,  a  few  weeks  ago  to  bid  on  an 
order  of  eight  thousand  army  wagons,  the  price  of  poplar  box ^ boards  went 
up  ten  dollars  a  thousand;  while  on  the  day  following  the  adjournment  of 
the  Wagon  Group  in  Chicago  on  last  Wednesday,  May  9th,  after  the  lumber 
brokers  had  received  notification  of  a  Government  order  for  about  sixty 
thousand  units,  the  major  portion  of  which  was  lumber,  they  shot  up  the 
prices  for  lumber  on  the  particular  things  needed  from  sixty  dollars  to  ninety 
a  thousand  feet.  There  was  no  reason  for  this,  for  the  base  costs  in  the 
lumber  on  May  10th  was  the  same  -as  on  May  9th.  .Thus  the  Government 


should   buy  the  large  basic   raw   materials  necessary   for   its   supplies   from 
which  the  manufacturers  can  draw. 

The  Second  Class  under  Consideration  Four,  namely,  the  manufacturers 
who  are  and  have  been  in  the  exclusive  business  of  manufacturing  war  supplies 
and  whose  entire  investment  is  in  that  business  should  be  treated  with  greater 
consideration  than  those  in  the  First  Class,  for  it  is  the  means  by  which  their 
investment  is  sustained.  The  members  of  that  Group  should  be  compelled 
likewise  to  present  their  sworn  statement  of  costs  an'd  then  should  be  per- 
mitted to  receive  from  eight  to  ten  per  cent  profit  on  their  sales,  which  should 
be  ample  in  war  times,  or  this  percentage  on  their  sales  which  have  or  will 
greatly  increase  in  volume,  will  give  a  very  substantial  profit  on  the  capital 
invested  .  Yet  under  this  class  reasonableness  should  be  exercised  so  that 
in  'every  case  a  definite  and  fair  profit  will  occur  to  the  capital  invested. 
Under  this  Class  would  come  the  ship  yards  al-ready  established  and  in  opera- 
tion in  this  country. 

The  Third  Class,  to-wit:  the  suppliers  and  producers  of  natural  prod- 
ucts such  &s  metals,  minerals  and  objects  of  like  nature,  of  which  there  is 
a  very  limited  source  of  supply  in  this  country  and  which  requires  investments 
which  will  be  of  little  value  after  the  war,  >and  the  Fourth  Class  above,  to-wit: 
those  producers  or  suppliers  who  are  compelled  to  build  new  plants  and  make 
new  investments  to  take  care  of  the  new  Army,  Navy  or  National  needs,  of 
which  there,  is  not  an  ample  supply  in  this  country,  such  as  additional  ship 
building — present  temporary  difficulties.  The  French  and  Russian  Govern- 
ments met  those  difficulties  in  this  country  by  advancing  a  percentage  of 
the  cost  to  the  manufacturers  and  suppliers  to  build  additional  buildings 
and  equipment;  then  allowed  them  to  put  a  sufficient  profit  on  the  goods 
tb  take  care  of  the  entire  investment  in  addition  to  the  profit  that  was 
allowed,  so  that  the  manufacturers  or  suppliers  could  scrap  the  entire  build- 
ings and  equipment  at  the  termination  of  the  war  orders  with  total  loss  to 
the  French  or  Russian  Government  and  to  such  <a  profit  as  the  manufacturer 
or  supplier  as  'he  could  get  out  of  the  buildings  and  equipment.  Because  of 
the  inability  of  those  governments  to  properly  protect  themselves  in  cases  like 
ttyis  heavy  exactions  were  made  from  them. 

The  following  suggestions  are  offered  in  this  regard : 

1.  The  Government  may  furnish  the  additional  money  necessary  for 
the  immediate  added  requirements  of  production,  and  iafter  the  war  maintain 
its  proprietary  interest  to  the  extent  of  its  investment  or,  sell  its  interest  on 
a  reasonable  basis,  less  depreciation,  to  the  owners  of  the  properties,  at  a  price 
fixed  in  the  contract  at  the  time  that  the  money  is  invested  by  the  Govern- 
ment, writh  the  right  in  the  Government  to  offer  it  at  public!  sale  at  a  higher 
price  at  the  conclusion  'of  the  war,  so  that  in  arranging  for  the  depreciation 
that  will  occur  if  the  owner  of  the  property  who  is  benefited  is  not  injured 
to  the  extent  that  he  thinks  he  is  going  to  be  injured,  the  Government  has 
a  right  to  sell  on  the  public  market  for  its  own  protection.    The  Government 
should  guarantee  the  capital  invested  in  this  Class,  but  should  not  be  mulched 
or  penalized. 

2.  The  Government  might  take  over  the  entire  plant  and  equipment, 
where  there  is  a  shortage  furnish  the  money  for  the  additional  buildings  and 
equipment  and  after  the  war  own  and  maintain  those  industries  even  if  they 
have  to  keep  them  closed  or  permit  after  the  war  the  renting  of  those  build- 
ings and  equipment  to  private  manufacturers  on  public  bid,   so  (there  imay 
not  be  a  loss  to  the  Government  while  holding  them  for  future  purposes. 

3.  In  event  the  Government  furnishes  the  money  to  a  manufacturer 
or  supplier  for  additional  equipment  the  Government  should  receive  three  and 


one-half  per  cent  interest  on  its  money,  which  should  be  deducted  from 
the  profits  of  the  manufacturer,  who  will  operate  under  the  cost  plus  profit, 
as  set  forth  in  Classes  One  and  Two  in  Consideration  Four. 

4.  In  order  to  induce  capital  to  invest  on  behalf  of  the  Nation  under 
Classes  Three   and  Four  and  take   the  risk   of  the   future,  the   G-overnment 
should  allow  -a  rate  of  profit  that  will  net  from  twelve  to  fifteen  per  cent 
on  the  additional  money  invested. 

5.  Where  the  Government  and  Allies'  needs  deplete  the  natural  supply 
of  natural  products  a  fair  value  should  be  added  to  cost  before  profit  is  taken. 
In  a  word,  the  depletion  value  which  goes  to  make  the  value  of  the  raw  material, 
material. 

Frequently  in  the  last  thirty  days  bankers  of  note  and  business  men 
have  suggested  that  in  order  to  maintain  prosperity  in  this  country  large 
profits  should  be  allowed  to  munition  makers  (1)  in  order  that  the  Govern- 
ment may  receive  large  taxes  from  them  and  (2)  in  order  to  maintain  "busi- 
ness as  usual."  In  this  regard  it  might  be  wise  to  point  out  that  the  very 
purpose  of  increasing  our  Federal  Taxes  is  to  get  money  to  pay  the  Nation's 
war  budget  and  it  is  quite  unwise  to  increase  the  Nation's  obligations  further 
by  way  of  excessive  profits  to  pay  its  debts,  for  by  that  means  you  are  increas- 
ing its  debt  to  a  greater  extent  than  you  are  collecting  it.  Under  the  second 
suggestion  of  "business  as  usual"  the  more  you  increase  the  profits  of  the 
war  suppliers  and  manufacturers  the  more  you  upset  the  normal  economic 
conditions  of  the  country.  In  the  base  cost  of  all  the  Government  supplies 
lies  the  great  dominant  item  of  labor  cost,  which  is  higher*  today  than  it  has 
ever  been,  without  its  purchasing  power  having  increased  proportionately  to 
the  benefit  of  the  laboring  and  consuming  classes,  a  situation  which  is  due  to 
the  abnormal  conditions  that  have  been  created  through  the  Middle  Men 
and  Brokers  of  this  country  such  as  speculators  in  food,  lumber,  leather, 
and  Middle  Men  handling  food  stuffs.  Increased  wages  to  the  laboring  men 
increases  terrifically  the  cost  of  goods  to  our  Government  as  well  as  to  our 
Allies  and  increases  rapidly  our  national  debt  without  benefiting  any  one. 

REMEDY  TWO: 

The  business  policy  of  the  big  commercial  life  of  this  Nation  has  turned 
from  peaceful  pursuits  to  a  war  basis,  and  the  large  economic  changes  due 
to  this  fact  are  now  appearing.  In  order  to  stabilize  conditions  surrounding 
business,  agriculture  and  labor  so  that  normal  conditions  may  obtain  as  far 
as  possible  PASS  THE  PRESENT  LAW  IN  CONGRESS  GIVING  ABSO- 
LUTE POWER  TO  THE  FEDERAL  GOVERNMENT  TO  ESTABLISH  A 
COMMISSION  TO  CONTROL  ALL  INDUSTRIES  IN  THE  UNITED  STATES, 
ALL  PRICES  AND  ALL  FOOD  AND  FUEL.  While  the  economic  law  of 
supply  and  demand  in  normal  times  controls  prices — that  great  law  has  not 
caused  the  terrific  increase  in  the  cost  of  living  which  has  and  will  become 
a  crushing  burden  to  the  men,  women  and  children  of  this  country  under 
present  conditions.  Unless  power  is  granted  as  above  we  might  just  as  well 
pay  ten  dollars  a  bushel  for  potatoes  and  twenty  dollars  a  barrel  for  flour. 
Only  a  certain  definite  number  of  bushels  cf  potatoes,  wheat  and  other  food 
products  was  raised  last  year.  The  base  cost  of  raising  and  marketing  these 
products  was  determined  before  the  war  was  declared  and  the  excess  addi- 
tions are  due  entirely  to  manipulation. 

Thus  today  the  patriotic  American  consumer  who  is  devoting  his  time 
and  energy  preparing  for  war  has  no  protection  for  himself,  his  wife  and  his 
children  against  the  "Pocketbook  Patriots,"  designing  speculators  and  crafty 
brokers  who,  unrestrained  in  this  country,  are  upsetting  the  normal  conditions 
of  domestic  life  for  our  men,  women  and  children  to  the  ultimate  injury  of 
our  national  cause. 

Respectfully  submitted, 

T\T  A  T?  TTXT    T     ft  TT  ,1  ."ft  \T 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 

AN  INITIAL  FINE  OP  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


;'P1  * 


C 


LD  21-100/n-7,'33 


Gay  lord  Bros 

Makers 
Syracuse,  N.  Y. 

£          PAT.  JM.  21,  1901 


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